Whistleblower suit: Disability pension system corrupt

A state whistleblower and former attorney for Connecticut’s retirement systems has filed a lawsuit alleging corruption and malfeasance in the handling of millions of dollars in disability pension benefits.

The lawsuit, filed by Virginia Brown of Avon, expands upon the concerns raised last week by the state’s auditors and alleges that the mishandling has put the state’s retirement systems at risk of losing federal tax law protection.

Comptroller Kevin P. Lembo, one of the principal defendants, responded Friday that the lawsuit focuses on practices that pre-date his administration and were already being revised. These reforms, though, require complex negotiations between the state and state employee unions, and don’t come quickly, he said.

The suit, which was filed in Superior Court and has been removed at the defendants’ request to U.S. District Court, names Lembo, Deputy Comptroller Martha Carlson, two other high-ranking officials in the comptroller’s office, the State Employees Retirement Commission and Linda Yelmini, former head of the state Office of Labor Relations, as defendants.

Brown, who was hired by Lembo in September 2012 and assigned to retirement services, claims officials “knowingly and purposefully applied the wrong legal standard and awarded” excessive retirement disability benefits – sometimes to ineligible individuals –“for purely political reasons.”

Those reasons, the suit alleges, include currying favor with state employee unions that supported Lembo’s election.

The Avon lawyer, who filed a whistleblower complaint with Auditors Robert M. Ward and John C. Geragosian two years ago, also alleged Lembo and his top aides routinely pressured her to conceal these issues and retaliated against her for reporting them.

She is seeking compensatory and economic damages for lost compensation, emotional and physical distress and damage to her reputation.

Michael Rose, a lawyer for the State Retirement Commission and Yelmini, said he would file a motion to dismiss his clients from the lawsuit. Attorney General George Jepsen, whose office represents Lembo and the other defendants, declined comment.

Lembo improperly provided a “backdated disability retirement” to one retiree which resulted in $198,000 in improperly paid retroactive benefits.

The retirement commission approved disability benefits for 14 former municipal workers deemed ineligible by the state’s Medical Examining Board at the prompting of Lembo, Carlson and Yelmini.

The comptroller’s office stripped an investigator of duties in 2012 for initiating a review into allegations that 40 East Haven municipal retirees were improperly receiving disability benefits while otherwise gainfully employed.

Officials failed to apply the federal dollar limit on maximum benefits per year for state employees who retired before 2011.

Ignored a recommendation from special counsel to disclose errors and file corrective information with the Internal Revenue Service. The special counsel subsequently quit.

“This conduct … continues to cause substantial injury to the state of Connecticut and its taxpayers by adversely affecting the financial stability of the retirement systems and the state,” Brown wrote.

“This is another example of a whistleblower speaking out as part of her civic duty to expose things that she believes are wrong at great risk to herself, both personally and professionally,” Brown’s Hartford attorney, Todd Steigman, wrote in a statement released Friday. “Without strong whistleblower protection laws, and vigorous enforcement of the laws prohibiting retaliation against whistleblowers, employees like Virginia will be less likely to come forward and the public will suffer in the long run.”

“There’s really not much new here,” Lembo told The Mirror Friday, noting that several of Brown’s concerns not only have been raised in media reports in recent years – but have been raised by the comptroller himself.

“Not one drop of ink would have been written about these issues if I had not discovered them, brought them to light and taken steps to end them” said Lembo, who took office in January 2011. Lembo succeeded former Comptroller Nancy Wyman, who was elected lieutenant governor in 2010 and again in 2014.

For example, Lembo said he had stopped disability retirement cases in which the state improperly paid in excess of a federal cap. Public sector unions then challenged those actions and legal battles continue to be fought.

“The reality is we were working on every one of these issues before the plaintiff came to work here,” he said.

Lembo added that he could not comment on specific allegations in pending litigation. But he rejected any notion of coercion, retaliation or favoritism – political or otherwise – in his office.

“I absolutely reject any claim that any decisions or actions were taken that somehow favored one group or another,” he said.

Brown’s lawsuit expands a controversy Ward and Geragosian outlined last week in a special report to Gov. Dannel P. Malloy.

The auditors warned the governor about “a potential breakdown in the safekeeping” of the state’s retirement disability programs centered on a key legal definition.

Under both the principal retirement program for state employees and a municipal workers plan administered by the comptroller’s office, disabled workers are supposed to undergo a medical review within 24 months after receiving disability benefits.

They cannot continue to receive disability benefits, according to the auditors, if a team of state-appointed doctors determines they could return to that job, or to a “suitable and comparable” position.

Lembo noted last week that he wrote both the Office of Labor Relations – the chief labor relations agency for the Executive Branch – and the State Employees Bargaining Agent Coalition on May 18 of this year, urging them immediately to begin negotiations to resolve any disagreement over the “suitable and comparable” standard for testing disability benefit eligibility.

Lembo’s letter was dated three days after he was served with Brown’s lawsuit.

Brown asserts she first complained to Lembo and others in October 2012 that this standard was not being applied. Workers were being allowed to maintain disability pay as long as their injury prevented them from returning to their original job.

Brown wrote that she demonstrated that a “significant number” of retirees were collecting disability benefits while also gainfully employed in comparable positions.

Lembo said last week that he suspended all 24-month reviews in late 2012 to try to develop a revised definition of “suitable and comparable” occupations. This meant that all disability retirees continued to receive benefits, even after 24 months, without any medical review.

But Brown alleges that, at the same time, Lembo and other defendants repeatedly coerced her to change her legal opinion “to support the improper administration and conceal their corruption.”

In late September and early October 2013, the state did allow the Medical Examining Board to meet twice, but the lawsuit said Brown was forbidden to attend or have further contact with the board, “despite repeated requests for guidance from the MEB.”

The medical board ended disability benefits for a significant number of retirees at these meetings, according to the auditors. But Brown added in her lawsuit that Lembo’s office subsequently said it had failed to notify the affected retirees prior to the meeting.

This meant the retirees’ cases would have to be reconsidered, and another meeting of the board was not scheduled, the lawsuit states.

And by Oct. 30, 2014, Lembo and Carlson notified staff that the 24-month medical reviews again would be suspended.

Brown also argued that the state’s failure to comply with the federal Internal Revenue Code could cause result in Connecticut’s retirement plans’ losing their “qualified” status. Among the tax advantages that go along with this are that employer contributions to the plan are tax-exempt.

The defendants disregarded the warnings about this matter from a nationally recognized law firm specializing in government pension plans, Ice Miller LLP, the lawsuit states.

The Indianapolis-based firm advised the commission to “make a voluntary correction filing” and notify the IRS that it had paid some state retirees disability benefits in excess of annual federal limits, the lawsuit states.

Brown added that Ice Miller threatened on Sept. 6, 2013, to resign unless the state followed its recommendations, and it did stop working for the state later that month.

According to the lawsuit, Brown then brought these issues to the auditors in accordance with the state’s “whistleblower” statute.

Brown was transferred to another state agency last November, the lawsuit states. According t o the Freedom of Information Commission’s website, she now serves as counsel there.

Also named as defendants in the lawsuit were Assistant Comptroller Natalie Braswell and Retirement Services Division Director Brenda Halpin.

Filed Under:

Keith, with Jacqueline Rabe Thomas, won first prize in investigative reporting from the Education Writers Association in 2012 for a series of stories on the Board of Regents for Higher Education. The former State Capitol bureau chief for The Journal Inquirer of Manchester, Keith has spent most of 24 years as a reporter specializing in state government finances, analyzing such topics as income tax equity, waste in government and the complex funding systems behind Connecticut's transportation and social services networks. A former contributing writer to The New York Times, Keith is a graduate of and a former journalism instructor at the University of Connecticut. E-mail him at kphaneuf@ctmirror.org.

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